During the implementation of anti-cyclical macro-economic
control policies between 1998-2001, the growth of China's GDP
remained stable at 7-8 percent, exceeding 8 percent in 2002. In the
first quarter of 2003, the growth was as high as 9.6 percent. In
spite of the impact of SARS, the GDP growth in the first three
quarters still kept at 8.5 percent.
Since 2002, China's GDP growth has been stabilizing at over 8
percent and the economic operation is in a fresh upward cycle.
Meanwhile, investment has been brisk, price has started going up,
and the index showing entrepreneurs' confidence has also increased.
From January to September 2003, society's total fixed asset
investment was 3 trillion yuan (US$362.8 billion), an increase of
30.5 percent over the previous year. The balance of the supply of
broad money (M2) rose by 20.7 percent. Banking institutions' RMB
loans increased by 2.47 trillion yuan (US$298.3 billion) compared
with the beginning of the year, a rise of 1.12 trillion yuan
(US$135.26 billion). Enterprises' profit obviously went up. The
consumer price indexes (CPI) grew for 10 straight months, and a new
round of consumption sprees has appeared, with cars, housing,
tourism and telecommunication tools becoming hot consumption
spots.
The far-reaching significance is that investment that relies on
state treasury was reduced, and the amount raised by enterprises
through foreign capital and domestic loans increased faster than
budgeted funds. The growth shows that China has received tangible
results from its six straight years of anti-cyclical operations,
demonstrating that the government investment has propelled
non-government investment, thus bringing China's entire economy
into an independent developing channel. Therefore, we can say that
China's macro-economic operation has passed through a low valley to
a peak.
In addition, the rising domestic economy has been supported by
the recovery of the world economy. A yellow book issued by the US
Federal Reserve Board in late November last year says that the US
economy has come out of its two-year long recession and is entering
a prolonged and widespread recovering period. Japan and euro-zone
countries have also got rid of their economic stagnation. The
International Monetary Fund (IMF), Morgan Stanley and other
world-known organs all gave an optimistic prediction for the
world's economic situation in 2004.
Such a strong development situation does not come easily. It is
the result of China's efforts to overcome difficulties brought
about by years of relatively low economic growth and deflation and
to carry out a series of economic control policies.
These major changes in the economic situation were followed by
heated discussions on macro-economic issues in various circles.
There are also suggestions on guarding against a new round of
overheating since there is rapid increase in money supply and
loans, repeated investment in real estate and other industries, and
a fast growth in energy and grain prices. The consumer price index,
however, is still negative. This indicates that overheated
investment growth might lack corresponding consumer desire.
Such thinking is normal. Logically, when an economic cycle hits
a peak, attention should be paid to preventing and controlling
economic overheating. In such fields as steel and real estate,
overheated investment does exist. But we cannot conclude from this
that the national economy is overheated and that measures should be
taken to deal with inflation. This is because we cannot judge
China's national economy as "cold" or "hot" simply by data, or by
comparison with other countries. We must take into account both
China's economic features and current prominent contradictions and
problems while making policy decisions for the next step. As the
process of commercialization, industrialization and urbanization is
being accelerated, and reform in various fields is deepened,
various complicated problems have emerged and become interwoven.
Some problems, such as those related to agriculture, rural areas
and farmers, unemployment, stagnant consumption, social security,
eco-environment, technological progress and industrial upgrading,
can be solved only through development.
To improve and perfect macro-economic control policies, we
should fully consider the following:
1.?It takes a period of time for the national economy to
reach its peak after passing a turning point, and during this time
there is much development potential at stake. Countermeasures
should be taken to deal with overheating and repeated construction
prompted by government investment in some industries.
2.?Development is an essential principle. In order to
realize the modernization strategy, we must turn the potential for
growth into real growth during the course of transforming the
economic pattern from a planned to a market-oriented one and change
the mode of growth from an extensive to an intensive one.
3.?Priority should be given to the unemployment problem and
social security, followed by alleviating inflation.
4. The process of market competition is one involving "repeated
construction" and is one in which the fittest survives.
At present, repeated construction mainly involves private
enterprises, which, in a sense, is dominated by the market economy.
Emphasis should be placed on opposing repeated construction under
government operations. Furthermore, China's current investment
mainly goes to the heavy chemical industry and, as it needs huge
amounts of capital and a long period between input and output, we
cannot expect an immediate consumer price index response.
The current favorable economic situation provides conditions for
relatively rapid development in the year 2004. So, we must
continuously implement sound fiscal policy under the principle of
expanding domestic demand and prudent monetary policy, so as to
accelerate economic development.
Attention must also be paid to taking preventive measures
against the next round of inflation pressure, intensifying economic
analysis and forecasting, and coping with overheating issues and
outstanding structural problems. Readjustment and improvement
should be made in following policies:
--Rationally adjusting the strength and emphasis of proactive
fiscal policies, with emphasis laid on appropriately reducing
long-term treasury bonds, mainly using government loans in extended
projects and in final-phase projects, increasing input in
agricultural and public health infrastructure facilities, as well
as in public projects relating to ecological protection, and
supporting key projects for western development and the
transformation of old industrial bases. Meanwhile, effective
measures must be taken to optimize project decision-making, to
strengthen supervision and management, and efficiently utilize
funds raised from issuing treasury bonds.
--Improving the coordination of fiscal and monetary policies,
and enhancing control over all financial matters.
--Bringing the role of the policy-oriented banking system into
full play, straightening the relationship between policy banks and
credit insurance organs on the one hand and financial departments
and commercial banking systems on the other, bringing the
regulatory role of discount, low-interest loans and credit
guarantee into full play, and actively exploring and propelling BOT
(build, operate and transfer) and other new ways to guide and use
non-governmental capital in public investment fields.
--Promoting a new round of taxation reform merging the income
tax of domestic and foreign-funded enterprises in due course,
realizing changes in VAT and putting into practice structural tax
reduction measures and other policy measures.
--Further expanding domestic demand through efforts to improve
consumption stimulating policies, public services, administrative
efficiency and the investment environment.
--Deepening reform, advancing system innovation and developing
the fundamental role of market mechanisms, so as to form a solid
system base for long-term economic growth.
(Beijing Review February 11, 2004)